The set-up: Verastem (VSTM), a maker of novel cancer drugs, will report data from a Phase 3 trial any day now. It’s a really great catalyst play — VSTM started making a move in March, after staying just above $1 a share for 17 months. It pulled back at $3, then came back and hit $4.10 on Thursday before closing at $3.90. The results are expected “in the latter part of summer 2017,” so depending on how you define “summer,” they may hit Friday – the last trading day before Labor Day – or sometime before Sept. 21.

Why I’m not holding it long-term: After running up 300 percent, the risk/reward on Verastem no longer is impressive. The drug duvelisib is in Phase 3 trials for an indication of relapsed/refractory chronic lymphocytic leukemia and small lymphocytic lymphoma. The next result will be a Phase 2 study for a different indication on the same drug, so the company has a lot riding on its main offering.

Verastem is small for a cancer drug developer, with a market cap of $135 million. If it fails in these trials, it puts the rest of its cancer pipeline in doubt. I day-traded VSTM July 28 for a nice profit, but it’s way too risky to be holding it right now.

Some perspective: Since I’ve been doing this, only one company under $200 million has had good cancer trial results. After it reported positive data on a leukemia drug, Celator Pharmaceuticals, Inc. (CPXX) ran from $1.53 to $8.70 in a day and $30.25 in less than three months. CPXX was acquired last year by Jazz Pharmaceuticals PLC (JAZZ) in a $1.5 billion deal.

The bottom line: If you didn’t buy Verastem at $1.50, don’t buy it now.

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 Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks.  He currently has no shares, options or open orders in VSTM; he last owned the stock on July 28, when he played it as a day trade for a $1,120 profit.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

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